Starting up in business – FAQs

A:  When launching a new business, you must consider which business structure is appropriate for your needs. This could mean operating as a partnership, sole trader or, incorporating the business as a limited company, although other structures are also available.

Choosing the correct structure is essential to get right from the start, so think about:

• Tax consequences;
• Risk to personal liability;
• Ultimate ownership;
• Suitability for the scale of the business; and
• HM Revenue & Customs (HMRC) and Companies House reporting and registration requirements.

Generally, registering as a limited company has many advantages when it comes to tax and personal liability, but you should also be aware that it has several important obligations and responsibilities.

A: If you intend to pay a salary to yourself or others and provide in-work benefits then you will need to set up a PAYE scheme with HMRC.

You will then need to calculate and deduct the PAYE and National Insurance contributions every time you pay your staff or yourself.

This is payable to HMRC monthly or quarterly. You are also required to notify HMRC each time a payment is made to an employee in a process known as Real Time Information (RTI).

All employers have to provide a workplace pension to all staff members aged between 22 and State Pension age that earn at least £10,000 per year and work predominantly in the UK.

Employers must contribute at least 3% and ensure that staff receive contributions equal to 8% of their wages.

A: As a business owner, you will need to understand how profits will be taken from the business. Sole traders and partnerships can simply draw profits out of their business, but companies will have the option of paying themselves a salary, dividends or other benefits.

All business will need to make sure their remuneration is tax efficient and have a clear idea of their upcoming tax liabilities so they can provide accordingly.

A: You must maintain appropriate accounting records for the business.

Some businesses will need to comply with Making Tax Digital (MTD) requirements requiring records to be maintained and submissions made to HMRC in the correct format.

However, as a minimum all businesses should maintain:

• Copies of sales invoices sent to customers
• Purchase invoices for any supplier costs incurred
• Expenses claim forms for items reclaimed from the business by any directors or employees
• Petty cash expense receipts
• Bank account and business credit cards statements for the business account
• Copies of any loan/finance/hire purchase/credit accounts the business has with any third parties.

A: Businesses will need to prepare accounts summarising their financial position.

Companies will need to file accounts with the Registrar at Companies House within nine months from the last day of its accounting period.

Please be aware, penalties are charged by Companies House and HMRC where accounts and tax returns are filed late, so businesses should be aware of filing deadlines.

A: Companies pay Corporation Tax on their net profits after allowable expenses and capital allowances. The current Corporation Tax rate in the UK is 19%, but there are a variety of reliefs available to reduce this bill.

Corporation Tax is always calculated based on the accounting period to a maximum of 12 months and must be paid to HMRC nine months and one day after the accounting period.

Profits of sole traders and partnerships are taxable at the business owner’s marginal rate of tax, which is typically 0%, 20%, 40% or 45%, although certain individuals can be taxed at as much as 60%. Class 2 and 4 National Insurance is also charged on trading profits.